CP Daily: Tuesday May 18, 2021

Published 01:42 on May 19, 2021  /  Last updated at 01:45 on May 19, 2021  /  Newsletter  /  No Comments

A daily summary of our news plus bite-sized updates from around the world.

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TOP STORY

ANALYSIS: Destined for a bumpy road, Chinese carbon traders go carefully into the ETS

Heralded as the ‘world’s biggest carbon market” for almost a decade, China’s national emissions trading scheme will likely be more modest than most of its peers when trading begins around a month from now, but stakeholders thought the market might still hold a few surprises.

UK ETS SPECIAL

PREVIEW: UK carbon market expected to open near EU ETS levels, though experts fear patchy trade 

Carbon allowances in the new UK ETS are expected to trade in line or at a slight discount to their EU counterparts from the launch of trade on Wednesday, though concerns over liquidity and market design is leading some experts to believe UKA prices could surpass those on the continent in the coming months.

Free permit allocations under UK ETS to come by end-May, meaning tiny supply pool for this week’s trading start

The UK is aiming to allocate the first free carbon allowances to emitters under its new ETS before the end of May, the government announced Tuesday, meaning trading in the market will very likely begin this week amid virtually no physical supply being available.

BRIEFING: A guide to the UK ETS

(Subscribers only) – The UK’s new emissions trading scheme kicks off on Wednesday with the first allowance auction, with the market modelled after the EU ETS to facilitate a future linkage. Here’s a quick guide outlining its design and how it differs from its European counterpart.

AMERICAS

PREVIEW: Speculative-fuelled CCA rises lead traders to foresee large Q2 WCI auction discount

Traders anticipate a steep discount to occur at the May 19 quarterly WCI auction, as California Carbon Allowance (CCA) prices have surged to near all-time highs on the secondary market this spring amid a wave of speculative interest.

RFS Market: Biodiesel RINs top $2 for all-time high as bull run continues

US biofuel credits (RINs) for biodiesel hit the $2 mark on Tuesday as climbing soybean oil values continued to lead prices under the Renewable Fuel Standard (RFS) to new records.

EMEA

EU Market: EUAs tumble 7% as slowing rally, onset of UK ETS supply trigger sell-off

EUAs plunged 7% on Tuesday as a pause in carbon’s record-breaking run and the onset of the first supply under the new UK ETS helped trigger widespread selling, dragging down much of the European energy complex.

Belarus drafts plan to shield itself from EU carbon border measures -media

Belarus is drafting a plan to shield itself from the effects of the EU’s planned carbon border adjustment mechanism (CBAM), a government official said Tuesday, according to national media reports.

INTERNATIONAL

No more fossil fuel projects to ensure 1.5C warming limit – IEA

There must be no more investment in new fossil fuel supply projects and no further sign-offs on unabated coal projects, the IEA said in a landmark report on how to achieve global net zero CO2 emissions in energy and industry without nature-based removals.

ASIA PACIFIC

China carbon trader leaves Engie to lead US commodity firm’s Singapore environmental desk

Engie’s former head of carbon and power trading in China has left to take over as head of environmental product trading in Asia for a US-headquartered commodities merchant, in the latest sign that the CO2 trading job market in the Asia-Pacific region is heating up.

COMMENT

Financing carbon dioxide removals – what role for ETS in the race to net zero?

Carbon pricing and specifically emissions trading systems can play an important role in incentivising removals necessary for achieving Paris Agreement emissions targets, according to the ICAP Secretariat.

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BITE-SIZED UPDATES FROM AROUND THE WORLD

Carbon Pulse has teamed up with CME Group to provide its clients with regular updates on the global carbon markets. Check out these briefs for the latest insights on pressing trends and events impacting markets, published every other week. Registration required.

EMEA

Just approved – The European Parliament on Tuesday gave its approval to the €17.5 bln Just Transition Fund supporting the EU’s coal regions in the energy transition, by 615 votes in favour to 35 against. The EU’s assembly ratified the political agreement reached in December by negotiators in the Parliament, Council of member states, and the European Commission, which will exclude any new fossil fuel investments, including gas.

Scrap the CAP – Young climate activists trying to halt the reform of the EU’s farming subsidies programme will turn their focus back to the European Parliament after their best ally, the European Commission’s climate chief Frans Timmermans, made clear his hands are tied on this dossier. Back in November, Timmermans hinted at the possibility of halting the CAP talks and withdrawing the Commission’s proposal if the negotiations stepped away from the main goals of safeguarding the European Green Deal, but at a meeting on Monday he said he couldn’t scrap the bill unilaterally. This will lead to a change of tack for the activists, who will now focus on EU lawmakers and urge them to vote down the CAP in the plenary once the interinstitutional negotiations are over. (Euractiv)

Helping hand – Germany awarded €546 mln in indirect ETS cost compensation in 2019, more than double the sum awarded in 2018, mainly due to the rising underlying carbon price. Some 322 companies with 902 installations received cash, which is intended to compensating for increases in power bills caused by utilities passing on the cost of their purchased EUAs. Germany emissions trading authority DEHSt has opened for applications until May 31 for compensation to cover 2020.

Minsky moment – The Bank of England increased its carbon price forecast to $150 per tonne by the end of the decade and warned banks that they face a tipping point similar to a “Minsky moment” if they fail to prepare. Earlier this year, the central bank said carbon prices may exceed $100 a tonne in order to limit global warming to well below 2 degrees Celsius, compared with pre-industrial levels. On Tuesday, Sarah Breeden, who leads the BOE’s climate related risks work, said the price would need to reach at least $150 to reach the Paris Agreement goal to reach net zero emissions by 2050. She cited preliminary research by the Network for Greening the Financial System, a group of 89 central banks and supervisors that includes the US Federal Reserve and the European Central Bank. Breeden said that without action, the financial system risked a so-called Minsky moment, which is when there is a sudden, major collapse of asset values, marking the end of a growth phase. (Bloomberg)

Special FX – European ETS-covered companies are among the firms rushing to boost their sustainability claims by using currency hedging products where the cost is tied to corporate ESG goals.  UK utility Drax has signed ESG-linked derivative deals with banks Barclays and NatWest, whereby it is paid a premium by the banks for meeting a carbon intensity reduction target. (Reuters)

For peat’s sake – The UK government announced fresh funding Tuesday to restore 35,000 hectares of degraded carbon-rich peatlands in England over the next four years while banning the sale of peat from 2024. It also has plans to treble tree planting via the creation of 7,000 hectares of woodlands annually by the end of 2024 – the equivalent of 20 mln new trees. (MailOnline)

AMERICAS

All-of-the-above the fray – President Joe Biden won’t agree to requests from left-wing environmental groups to exclude CCS and nuclear power from his green infrastructure plans, the top White House climate official said Tuesday. National climate advisor Gina McCarthy said that Biden will instead find other ways to address the worries raised by activists that those technologies wouldn’t address the pollution harming poorer and minority regions. For instance, the administration will pursue stricter mandates on air pollution coming from power plant smokestacks. McCarthy’s comments come in response to concerns raised recently by left-wing climate groups and the White House Environmental Justice Advisory Council that certain low-carbon technologies, including carbon capture, direct air capture, and nuclear power, would not alleviate the pollution burden borne by disadvantaged and marginalised communities. Those groups and the council are calling on the Biden administration to avoid investing in those technologies. (Washington Examiner)

Buildings back better –  US President Joe Biden’s administration announced Monday that it is taking several actions aimed at making buildings cleaner, including new “performance standards” for federal buildings. A fact sheet released by the White House didn’t give specific details on what exactly the performance standards would entail but said it plans to “establish metrics, targets, and tracking methods to reach federal carbon emissions goals.” Meanwhile, the administration will also create new Energy Star standards for heat pumps, central air conditioners, and electric water heaters, according to the fact sheet. (The Hill)

Keeping it competitive – The independent market monitor for the RGGI allowance market continues to find no evidence of anti-competitive conduct, according to the Annual Report on the Market for RGGI CO2 Allowances: 2020, released Tuesday. Prepared by Potomac Economics, the report evaluates activity in the market for RGGI carbon allowances in 2020, focusing on the following areas: allowance prices, trading and acquisition of allowances in the auctions and the secondary market, participation in the market by individual firms, and market monitoring.

Monitors wanted – Carbon market administrator WCI, Inc. on Monday issued a request for proposals for market monitoring services. Responses must be received by midnight GMT on June 12 (1700 Pacific Daylight Time, June 11).

ASIA PACIFIC

That was then, this is now – Australia has released regulations opening up for its renewable energy agency, ARENA, to also handle carbon capture and storage, even though that is far removed from its original purpose, according to RenewEconomy. The move comes as Australia’s right-wing Coalition government for years has downplayed renewable energy investments while committing funds to fossil fuel energy technology development, such as CCS.

SCIENCE & TECH

Fry in the sky – Air France-KLM flew a biofuel-powered Airbus A350 from Paris to Montreal on Tuesday, demonstrating the airline’s readiness to adopt low-emissions fuel despite deep industry divisions over the pace of its adoption. Air France flight 342 took off from Charles de Gaulle airport with a 16% mix of sustainable aviation fuel (SAF) in its fuel tanks, produced in France by Total from used cooking oil. Jet fuel produced from biomass or synthetically from renewable power has the potential to slash carbon emissions, albeit at a heavy cost by comparison to the price of kerosene. Starting next year, flights departing from France will be required to use 1% SAF, ahead of European Union goals to reach 2% by 2025 and 5% by 2030 under the bloc’s Green Deal policy. (Reuters)

Shavn’ ice – A large section of the Greenland ice sheet may be nearing a tipping point that, if crossed, would make accelerated melting “inevitable even if global heating was halted”, the Guardian reports. This is according to new research in which the authors “detected the warning signals of a tipping point” in a the Jakobshavn basin – the fastest melting basin in Greenland, and one of the biggest. The newspaper notes that, given uncertainties in the research, the ice sheet “might already be at the point of no return, or be about to cross it in the coming decades”. It adds that the “ice equivalent to 1-2 metres of sea level rise is probably already doomed to melt”. (Carbon Brief)

AND FINALLY…

It pays to pollute – CEO pay at some of America’s top oil and gas companies last year stayed more than 100 times above the median salary of workers at that company, a new analysis has found. In some cases, that gap increased — even as those companies laid off workers and took in federal aid money. The analysis, published Monday by nonprofit watchdog group BailoutWatch, found that at a dozen oil companies – including big names like Chevron, ConocoPhillips, and Phillips 66 – CEO pay in 2020 was more than 100 times that of the median worker’s pay. All of those companies laid people off last year, including the nine companies that collectively got $4.8 bln in federal bailout money. (Earther)

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